There are several money mistakes that can cost you big time. And if you don't recognize these, you could end up broke. Nobody is born knowing how to perfectly manage their finances. Much of what we do happens by trial and error. Although everyone makes a few mistakes, some are more costlier than others. Here are seven money mistakes that can cost you big-time.
1. Cosigning a Loan
Whether it's for a friend, a child or another relative, cosigning a loan is one of many money mistakes that can cost you big time. If the other person pays the monthly payment on time, you have nothing to worry about. But if this person defaults, their actions can ruin your credit, or you could end up paying off the loan.
2. Failing to Compare Interest Rates
No two loans are created equal. For that matter, it's important that you compare loan rates to ensure you're getting the best deal. Interest rates determine how much you'll pay monthly. The higher your rate, the more you'll pay. For that matter, don't rush when applying for loans. Compare offers by at least two or three lenders.
3. Paying Your Bills Late
If you pay a bill late, your creditors will charge a late fee, which can range between $25 and $45. Also, interest will continue to be incurred, increasing your balance. If the creditor reports a delinquency to the credit bureaus, your credit score can drop and this can trigger a higher interest rate on future financing.
4. Payday Loans
I understand that sometimes you have to do what you have to do. But before you apply for a payday loan, make sure you fully understand how these loans work. These loans are a short-term solution when you're in a tough jam, but payday loans feature extremely high interest rates and the balance is due in full within two weeks. If you get a payday loan, but can't repay the loan, your debt will snowball. On average, payday loan companies charge $25 per every $100 you borrow.
5. No Emergency Fund
Your rent, car payment and utilities are important, but saving and building an emergency fund is just as important. And without any type of emergency savings, one emergency can send you into debt. Even if you're only able to save $25 from each paycheck, something is better than nothing.
6. Delaying Saving for Retirement
As you look into the future, you may hope that you won't have to downsize your lifestyle after retiring. But the truth of the matter is, your future financial health depends on how early you start saving. Even if you're only able to contribute a small amount during your young adult years, it's important to get a jump start on retirement plan in your 20s.
7. Lending Money You Don't Have to Give
It's okay to lend someone money; just make sure you can afford the loan. The person who needs the cash may promise to pay you back, but there are no guarantees. For that matter, only lend money if you can afford to lose the amount. Also, a handshake won't do. Get the agreement in writing, including how much you're lending and when the person will repay funds.
Everyone makes money mistakes from time to time, but certain mistakes can hit your pocket hard. Therefore, it's important to identify behaviors that can have a tremendous impact on your personal finances. What are other costly money mistakes?